National Association of Music Merchants Settles FTC Charges of Illegally Restraining Competition

National Association of Music Merchants Settles FTC Charges of Illegally Restraining Competition

Commission Order Prohibits NAMM From Facilitating Collusive Strategies Among its Members

For Release

March 4, 2009

The Federal Trade Commission has issued a consent order settling charges that the National Association of Music Merchants (NAMM), a trade association with more than 9,000 members nationwide, violated federal law by enabling and encouraging the exchange of competitively sensitive price information among its members.

The FTC alleged that NAMM organized meetings at which its members were encouraged to communicate, and did in fact share, information about prices and business strategy. To the detriment of consumers, NAMM’s conduct enhanced the members’ ability to coordinate price increases for musical instruments. In settling the complaint, NAMM has agreed to stop engaging in such conduct.

“Trade associations properly provide many services for their members, but enabling competing sellers to work together to coordinate higher prices for their products is not a legitimate function,” said David P. Wales, Acting Director of the FTC’s Bureau of Competition. “The strong terms of the Commission order announced today will protect consumers from paying higher prices by ensuring that NAMM does not facilitate anticompetitive agreements or coordination.”

NAMM is a trade association whose members include most U.S. manufacturers, distributors, and dealers of musical instruments. It serves the economic interests of its members by promoting consumer demand for musical instruments, lobbying the government, offering seminars, promoting music education, and organizing trade shows. NAMM sponsors two major U.S. trade shows each year, where manufacturers introduce new products and meet with dealers. These shows also provide competitors with a chance to meet and discuss issues of concern within the industry.

Between 2005 and 2007, according to the Commission, NAMM organized various meetings and programs at which competing musical instrument retailers were encouraged to discuss strategies for implementing manufacturers’ minimum advertised pricing (MAP) policies, restricting retail price competition, and securing higher retail prices. NAMM representatives allegedly determined the scope of the discussion and information exchange by selecting moderators and setting the agendas for these programs. At these NAMM-sponsored events, the FTC contends, competitors discussed retail prices and margins, how to enforce MAP policies, and other competitively sensitive issues.

According to the Commission’s complaint, NAMM’s conduct crossed the line that divides legitimate trade association activities from unfair methods of competition. While trade associations such as NAMM often provide valuable pro-competitive functions, the FTC contends that NAMM violated federal law when the association engaged in conduct that had the “principal tendency or likely effect of harming competition and consumers.”

Specifically, the complaint states that at meetings and programs sponsored by NAMM, competing musical instrument retailers discussed strategies for raising retail prices. Retailers exchanged information on competitively sensitive subjects, including prices, margins, and MAP policies. NAMM not only sponsored these meetings, according to the FTC, but set the agenda for what would be discussed and helped steer the discussions. Finally, the Commission alleges in the complaint that the challenged conduct served no legitimate business purpose and resulted in no significant efficiency benefits.

The complaint alleges that NAMM’s conduct could facilitate the implementation of collusive strategies among competitors – conduct that would harm consumers. Such conduct could, for example, result in an agreement among competing retailers to raise prices.

The FTC’s proposed consent order is designed to remedy NAMM’s anticompetitive conduct. First, it bars NAMM from coordinating the exchange of price information among musical instrument manufacturers and dealers, or coordinating certain discussions concerning the conditions under which any manufacturer or dealer will buy or sell products. Next, the order prohibits NAMM from aiding musical instrument manufacturers or retailers to form an anticompetitive agreement, such as agreements among competitors relating to price, minimum advertised price, and terms of dealing.

In addition, the order requires NAMM to implement an antitrust compliance program and requires that antitrust counsel review written materials and prepared remarks by any member of the association’s board of directors, employees, or others related to price terms and MAP policies. Antitrust counsel must also provide guidance to NAMM and its representatives on complying with competition laws. The proposed order would not constrain the ordinary commercial activities of NAMM’s members at trade shows, and would not interfere with NAMM’s ability to engage in legitimate trade association activities, including sponsoring trade shows and promoting music education. The order will expire in 20 years.

The Commission vote to accept the complaint and consent order and place copies on the public record was 4-0. The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The complaint, consent order, and an analysis to aid public comment can be found now on the Commission’s Web site at http://www.ftc.gov/os/caselist/0010203/index.shtm.

The agreement will be subject to public comment for 30 days, beginning today and continuing through April 2, 2009, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $16,000.

Copies of the documents related to this matter are available from the FTC’s Web site at http://www.ftc.gov and the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 383, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.